Kenya: Why China Refused to Finance Railway It Initially Backed

President Uhuru Kenyatta (left) greets Chinese President Xi Jinping at the Great Hall of the People in Beijing on April 25, 2019 ahead of the second Belt and Road Forum for International Cooperation.

It can now be revealed that difficult loan conditions were responsible for Kenya's failure to get funding for the second phase of the SGR.

China refused to extend part of the funding as a grant and also wanted "sufficient proof of viability" before they could authorise the deal to construct the standard gauge railway beyond Naivasha.

On Friday, Transport CS James Macharia said the SGR, which has reached Naivasha, will now be linked to the old line to ensure there is no disruption in transportation.

VIABILITY

The latest developments come as a slap in the face for Nairobi, which had appeared assured of clinching the Sh368 billion financing to extend the line to Kisumu.

Sources told the Saturday Nation that the decision followed lack of progress on changing conditions imposed by the Chinese. President Uhuru Kenyatta had asked for half of the money to be given as a grant and the balance be in a loan with more relaxed conditions.

And, though Kenya accepted to allow the Chinese to build, run and hand it over once they recoup their money, the Chinese reportedly insisted on proof that the SGR will be viable. The line, already running from Mombasa to Nairobi (with the Naivasha extension due for completion in August), has ferried 2.6 million passengers and 3.6 tons of cargo since it was launched in June 2017.

But it made a loss of Sh10 billion in the first year. Kenyan officials had argued that the initial loss was to be expected as public awareness of the railway usage was still low. Nairobi asked for the grant to be given as part of the Belt and Road Initiative, officials said.

The Chinese, though, insisted on collateral, something Nairobi had gone to Beijing to avoid. Traditionally, the Chinese have used grants and interest-free loans to rope in least developed countries to its Belt and Road Initiative.

Mr Macharia said the government was rethinking the railway for now, until "we have investments on that corridor which actually add value to the SGR and the entire country."

UNFAVOURABLE

"The metre-gauge railway was done many years ago. It is being used to transport goods to Uganda and we have to make sure that that connectivity (between SGR and old railway line) is quickly addressed and one of the discussions we are making in this visit is how we can quickly close that gap," he said.

"We have already put proposals to make sure that when we finish the SGR in Naivasha in August, we can then move goods from Naivasaha SGR to Naivasha MGR. Then we have a seamless movement of goods from Mombasa all the way to Kampala." Forced by unfavourable financing by the Chinese, the change of mind back to the old line signals a reality check for government officials who spent the last five years fighting back criticism on the cost of the line.

Nairobi signed another three infrastructure financing deals, including the construction of the Waiyaki Way-Jomo Kenyatta International Airport expressway, a Sh51 billion project that was once linked to the World Bank before it pulled out mysteriously.

They also signed for funding to expand the Northern bypass and ease congestion as well as another on the construction and maintenance of the Konza data centre and smart cities project worth Sh175 billion.

CONCESSIONAL

The deals are worth Sh226 billion and are made through concessional financing and public-private-partnership (PPP), State House said.

But the President's delegation sought to downplay the criticism, arguing China was more important in other things as well.

"People have come to think that the collaboration with China is just about SGR only. Things have changed. Because now we are looking at the perspective of having a corridor which is very viable both socially and economically," Mr Macharia argued.

It means the government will now focus on building a link rail between the old line and the SGR at Naivasha, some 43 kilometres apart.

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